Hard inquiries typically get pulled when you apply for credit accounts. The more you have, the lower your score goes and the harder it is to get more credit. This applies to everything from a student loan to a credit card. However, credit scoring companies know that, at times, multiple inquiries just mean that you're shopping around. As such, sometimes they can get grouped together into a single inquiry, minimizing the impact on your credit.
Whether or not hard inquiries get grouped together depends on the type of loan you're applying for and the time frame between the inquiries. According to Fair Isaac Corp., the company responsible for generating FICO scores, inquiries related to a car loan or a mortgage are eligible to be grouped together. For the inquiries to get grouped, they need to be made within 14 to 45 days of each other, depending on the type of score that is being pulled. Newer versions of the scoring system typically give you more time.
Hard inquiries that aren't related to a car or a mortgage don't get grouped. This means that if you go to the mall and apply for cards from five different stores on the same day, you'll end up with five hard inquiries on your credit. If you end up in financial trouble and a collection agency pulls your credit report, it can also end up as a hard inquiry.
The Problem With Inquiries
Having six or more inquiries on your credit report makes you appear to be a significant risk. Fair Isaac claims that hitting that threshold makes you eight times more likely to file bankruptcy than someone with zero inquiries. While one inquiry might not have much impact on your score, multiples can.
To avoid inquiries from creditors that do not get grouped, do all of your applying as close together in time as possible. That way, they're eligible to be grouped. For other types of inquiries, like those tied to credit card applications, the best way to avoid inquiries is to not apply for too much credit at any one time.
You don't have to worry about soft inquiries, though. A soft inquiry happens when someone pulls your credit to send you an offer. They also happen when your existing creditors check your credit. You can also freely check your own credit without harming your score. In fact, doing this periodically is a good idea to ensure that there aren't any issues on your report. In fact, AnnualCreditReport.com provides one free credit report from each of the three major credit reporting agencies per customer every 12 months.
Steve Lander has been a writer since 1996, with experience in the fields of financial services, real estate and technology. His work has appeared in trade publications such as the "Minnesota Real Estate Journal" and "Minnesota Multi-Housing Association Advocate." Lander holds a Bachelor of Arts in political science from Columbia University.